Rising Home Purchase Cancellations: A Canary in the Coal Mine for Real Estate Investors

The U.S. housing market is sending mixed signals. While mortgage rates have dipped slightly from their 2024 peaks, home purchase agreement cancellations are surging to near-pandemic levels, signaling a deeper malaise beneath the surface. For investors, these cancellations are not mere statistical anomalies but early warning signs of a broader slowdown—one that could reshape real estate strategies for years to come.

The Cancel Culture in Housing

In May 2025, 14.3% of U.S. home sales under contract were canceled, the highest rate since 2020 and a stark increase from 5% in May 2024.

. These cancellations are concentrated in fast-growing Sun Belt markets like Atlanta (20%), Orlando (19.4%), and Miami (18.9%), where overbuilt inventory and rising costs—such as insurance hikes due to climate risks—are deterring buyers.

The trend is not confined to one region. All four U.S. regions reported month-over-month increases in pending sales in May, but year-over-year comparisons remain bleak: the West fell 1.2%, while the Northeast dipped 0.5%. This divergence highlights a market stuck in limbo—buoyed by modest buyer interest but hamstrung by affordability and uncertainty.

The Drivers: Rates, Uncertainty, and Regional Imbalances

1. Mortgage Rates at Unfriendly Heights
The average 30-year fixed mortgage rate has averaged 6.8% in 2025, nearly double its 2020 low. . This has priced millions out of the market. With Fannie Mae projecting rates to average 6.5% by year-end, affordability remains a ceiling buyers cannot punch through.

2. Economic Anxiety and Geopolitical Volatility
Buyers are increasingly wary of macro risks: tariffs, layoffs, and geopolitical tensions. Redfin reports that 24% of prospective buyers delayed purchases due to economic concerns, while stock market swings have eroded equity-driven buying power.

3. Regional Overbuilding and Cost Pressures
Florida and Texas, once engines of growth, now grapple with oversupply. Florida's housing inventory hit a record high, while Miami's HOA fees and insurance premiums for flood-prone areas have made homes unaffordable for many.

Implications for Investors: Risks and Opportunities

The Risks

• Overexposure to Sun Belt Markets: Regions like Florida and Texas face dual threats: oversupply and climate-driven costs. Investors holding vacation homes or condos in these areas may see values stagnate or decline.
• Price Declines Ahead: Redfin forecasts a 1% national price drop by year-end, with deeper declines in the South. A prolonged slowdown could test the resilience of leveraged real estate portfolios.
• Liquidity Challenges: A buyer's market with high cancellation rates means slower sales cycles and reduced pricing power.

The Opportunities

• Buyer's Market Bargains: With inventory at a 9.8-month supply—the highest since 2009—investors can negotiate lower prices. Target undervalued metro areas like the Midwest or Northeast, where cancellations are lower and demand more stable.
• Rental Market Resilience: While sales slump, rentals remain steady. Investors could pivot to long-term rental assets, particularly in job-growth hubs like Denver or Seattle.
• Mortgage Rate Dips Ahead: If the Fed cuts rates in 2026—as Fannie Mae predicts—mortgage costs could ease to 6.1%, unlocking pent-up demand. Timing investments to this potential rebound could yield outsized returns.

Navigating the Crossroads

The path forward is fraught with uncertainty, but data-driven strategies can mitigate risk:
- Diversify Geographically: Avoid overconcentration in high-cancellation regions. Allocate to markets with balanced supply-demand dynamics, such as the Pacific Northwest or Rocky Mountains.
- Focus on Cash Flow: Prioritize rental properties or multifamily units, which offer steady income streams even in stagnant sales markets.
- Monitor Mortgage Rate Trends: . A rate drop below 6% could reignite buying, but investors must avoid chasing the market.

Conclusion: Caution, but Not Cynicism

Rising cancellations are a wake-up call—not a death knell. The housing market's fundamentals—population growth, urbanization, and demand for shelter—are still intact. But investors must adapt to a new reality: slower growth, higher costs, and greater regional disparity.

For now, the playbook is clear: stay liquid, prioritize cash flow, and avoid overextending in overheated markets. The next chapter of real estate investing will favor those who wait for clearer skies—or bet on the storm.

Harriet Clarfelt is a seasoned financial analyst specializing in macroeconomic trends and real estate markets. Her insights blend data rigor with a keen eye for emerging risks and opportunities.